J J J

1/p.} at (l/p.)U (w),a (w)). Moreover w-{(l/p.)U .{w),a .(w))) = L J J lj ¿J J ¿J

Hence we obtain the following figure.

Figure 15 D.6(c)

(d) As we saw in the discussion preceding Proposition 15.D.2 (Rybcszynski Theorem), the factor intensity condition implies that there exists exactly ore

ractor orice vector w =

(w w } such that, for any total initial endowments, the factor price vector of any equilibrium Involving positive production of

both seeds is eaual to w. Bv (b), the total initial endowment vector z gives rise to an (unique) equilibrium that involves positive production of both goods if and only if z belongs to the diversification cone of w. If z lies below th ci ne, that is, ^/z^ £ a^M/a^Aw), then the economy specializes in oroduction of coed 1 and the ecuilibriun factor price vector w* is

determined so that a A w*) = (1// (z})z and = p^ If, on the other

hand, z lies above the cone, that is, z^/z^ ^ (w), then the economy specializes in production of good 2 and the equilibrium factor price vector w** is determined so that a^fw**) = il/fy[z))z and c^iw**) = p^. These are illustrated in the following picture.

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